Its amazing to me how many ways supporters of government health care can find to rationalize the bad incentives of third-party payers systems. Take, for example, the prevelance today of numerous, costly tests that appear to be unnecessary. Obamacare supporters would say that this is the profit motive of doctors trying to get extra income, and therefore a free market failure. I would point the finger at other causes (e.g. defensive medicine), but the motivation does not matter. Let’s suppose the volume of tests is truly due to doctors looking for extra revenue, like an expensive restaurant that always is pushing their desserts. In a free economy, most of us just say no to the expensive dessert. But the medical field is like a big prix fixe menu — the dessert is already paid for, so sure, we will got ahead and take it whether we are hungry or not.

It should be no surprise that while US consumer prices have risen 53% since 1992, health care prices have risen at nearly double that rate, by 98%. Recognize that this is not inevitable. This inflation is not something unique to medical care — it is something unique to how we pay for medical care.

Contrast this inflation rate for health care with price increases in cosmetic surgery, which unlike other care is typically paid out of pocket and is not covered by third party payer systems. Over the same period, prices for cosmetic surgery rose just 21%, half the general rate of inflation and just over one fifth the overall health care rate of inflation.

This is why I call free market health care the road not traveled. There are many ways we could have helped the poor secure basic health coverage (e.g. through vouchers) without destroying the entire industry with third-party payer systems. Part of the problem in the public discourse is that few people alive today can even remember a free market in health care, so its impossible for some even to imagine.

Update: Coincidently, Mark Perry has a post that addresses just the issue I do in my article, that is the positive effects of high-deductible health insurance and out of pocket health expenditures on pricing transparency and reduced costs. The high deductible health plans at GM seem to be having a positive effect on the health care market. A shame they will probably be illegal under Obamacare. Of course, since GM is owned by the government, it can get any special rules that it wants, unlike the rest of us. But that his how things work in the corporate state.